Atkinson V. Lularoe
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Case 5:17-cv-02287 Document 2 Filed 11/14/17 Page 1 of 28 Page ID #:2 1 Alexander M. Schack, Esq., (SBN 99126) Natasha N. Serino, Esq., (SBN 284711) 2 LAW OFFICES OF ALEXANDER M. SCHACK 3 16870 West Bernardo Drive, Suite 400 San Diego, California 92127 4 Telephone: (858) 485-6535 5 Facsimile: (858) 485-0608 [email protected] 6 [email protected] 7 Attorneys for Plaintiffs Melissa Atkinson, et al. 8 9 IN THE UNITED STATES DISTRICT COURT 10 FOR THE CENTRAL DISTRICT OF CALIFORNIA 11 ) Case No.: 12 MELISSA ATKINSON, an individual, for ) herself and all others similarly situated, ) CLASS ACTION COMPLAINT 13 ) Plaintiffs, ) 14 ) JURY TRIAL DEMANDED vs. ) 15 ) ) 16 LLR, INC., a Wyoming Corporation; ) LULAROE, LLC d/b/a LULAROE; a ) 17 California limited liability corporation; and ) Does 1 through 100, inclusive, ) 18 ) ) 19 Defendant(s). 20 21 Plaintiff Melissa Atkinson (“Plaintiff”), individually and on behalf of all others 22 23 similarly situated (the “Class”), by and through her attorneys, files this Class Action 24 Complaint against LLR, Inc., LuLaRoe, LLC, and DOES 1 through 100 (collectively 25 “Defendants”). 26 27 28 - 1 - CLASS ACTION COMPLAINT Case 5:17-cv-02287 Document 2 Filed 11/14/17 Page 2 of 28 Page ID #:3 1 INTRODUCTION 2 3 1. This is an action on behalf of Plaintiff Melissa Atkinson (hereinafter 4 “Plaintiff, for herself and all those similarly situated, to recover damages caused by 5 Defendant’s operation of a fraudulent pyramid scheme and endless chain scheme. As 6 alleged herein, the scheme is fraudulent because it requires the payment by participants of money to Defendants LuLaRoe, LLC and LLR, Inc. (collectively 7 “LuLaRoe”) and their co-conspirators, in return for which participants receive (1) the 8 right to sell products and (2) the right to receive, in return for recruiting other 9 participants into the program, rewards which are unrelated to the sale of the product 10 to ultimate users. 11 2. This action is brought on behalf of a class of persons who serve or have 12 served as Independent Fashion Retailers for LuLaRoe. 13 3. As a result of Defendants’ deceptive acts, practices, and representations, 14 and its operation of the illegal scheme alleged herein, Plaintiff and the Class members 15 defined below have suffered harm in that they lost money or property to become 16 participants (i.e. Independent Fashion Retailers for LuLaRoe) and to purchase 17 inventory. Plaintiff therefore brings this action seeking relief on behalf of herself and 18 all others similarly situated. 19 PARTIES 20 4. Plaintiff Melissa Atkinson is a California citizen who resides in San 21 Diego County, California. Plaintiff was recruited to be an Independent Fashion 22 Retailer for LuLaRoe and unknowingly became a participant of their fraudulent 23 pyramid scheme. 24 5. Defendant LuLaRoe, LLC d/b/a LuLaRoe is a California limited liability 25 company with its principal place of business at 1375 Sampson Avenue, Corona, CA 26 92879. Defendant LuLaRoe, LLC is doing business in the State of California. 27 6. Defendant LLR, Inc. is a Wyoming corporation with its principal place 28 of business at 416 Double Eagle Ranch Road, Thayne, WY 83127. Defendant LLR, - 2 - CLASS ACTION COMPLAINT Case 5:17-cv-02287 Document 2 Filed 11/14/17 Page 3 of 28 Page ID #:4 1 Inc.’s principal place of business in California is located at 1375 Sampson Avenue, 2 Corona, CA 92879. 3 7. The true names, roles and/or capacities of Defendants named as DOES 1 4 through 100, inclusive, are currently unknown to Plaintiff, who therefore names and 5 sues such Defendants under fictitious names. Plaintiff will identify their true 6 identities and their involvement if and when that information becomes known. 7 Plaintiff is informed and believes and thereon alleges that each of the fictitiously named defendants is responsible in some manner for the occurrences and damages 8 alleged herein. 9 8. Plaintiff is informed and believes and thereon alleges that, at all times 10 mentioned, each defendant, including DOES 1 through 100, was the agent, 11 representative, alter ego, successor-in-interest, affiliate, principal, partner, joint 12 venture, and/or employee of the other defendants, and was acting within the course 13 and scope of its authority and with the express and/or implied permission, knowledge, 14 consent, and ratification of all other defendants when doing the acts and omissions 15 alleged herein. 16 9. Each of the Defendants acted as the co-conspirator, agent, joint venturer, 17 or alter ego of and/or for the other Defendants with respect to the acts, violations, and 18 common course of conduct alleged herein, and ratified said conduct, aided and 19 abetted, or is otherwise liable. Defendants have had meetings with other Defendants 20 and reached agreements to market the LuLaRoe pyramid or chain scheme as alleged 21 herein. Defendants also used interstate communication methods, including mail, 22 telephone lines, and internet transmissions to perpetuate their unlawful activities as 23 alleged herein. 24 10. The acts charged in this Complaint, as having been done by Defendants, 25 were authorized, ordered, ratified or done by their officers, agents, employees, or representatives, while actively engaged in the management of the Defendants’ 26 business or affairs. 27 JURISDICTION AND VENUE 28 - 3 - CLASS ACTION COMPLAINT Case 5:17-cv-02287 Document 2 Filed 11/14/17 Page 4 of 28 Page ID #:5 1 11. This Court has jurisdiction over this action pursuant to the Class Action 2 Fairness Act of 2005, 28 U.S.C. § 1332(d). Plaintiff alleges that the amount in 3 controversy exceeds $5,000,000, exclusive of interest and costs. Plaintiff further 4 alleges that members of the proposed Class are citizens of a state different from that 5 of LLR, Inc., and that the proposed Class includes in excess of 100 members. 6 12. This Court has personal jurisdiction over LuLaRoe because LuLaRoe 7 regularly conducts business in California and has marketed and sold inventory in California and recruited participants for its illegal pyramid scheme in California. 8 LuLaRoe therefore has sufficient minimum contacts with this State to render the 9 exercise of jurisdiction by this Court in compliance with traditional notions of fair 10 play and substantial justice. 11 13. Venue is proper in this District pursuant to 28 U.S.C. § 1391 because 12 Defendants transact a substantial amount of business in this District and because a 13 substantial part of the events or omissions giving rise to Plaintiff’s claims occurred in 14 or emanated from this District 15 FACTUAL ALLEGATIONS 16 A. The Nature of Pyramid Schemes 17 14. While pyramid schemes can take different forms, they are at their core 18 inherently illegal schemes by which their perpetrators induce others to join the 19 scheme with the promise of high profits and rewards from a putative business. The 20 reality of the schemes, however is that rewards to those that join come almost 21 exclusively from the recruitment of new participant victims of the scheme. 22 15. “Pyramid schemes are said to be inherently fraudulent because they must 23 eventually collapse.” Webster v. Omnitrition International, Inc., 79 F.3d 776, 781 24 [citing S.E.C. v. International Loan Network, Inc., 968 F.2d 1304, 1309 25 (D.C.Cir.1992). “Like chain letters, pyramid schemes may make money for those at 26 the top of the chain or pyramid, but “must end up disappointing those at the bottom 27 who can find no recruits.” (Id. [citing In re Koscot Interplanetary, Inc., 86 F.T.C. 28 1106, 1181, aff’d mem. sub nom.]. - 4 - CLASS ACTION COMPLAINT Case 5:17-cv-02287 Document 2 Filed 11/14/17 Page 5 of 28 Page ID #:6 1 16. Per the Federal Trade Commission’s established test for assessing what 2 constitutes a pyramid scheme, pyramid schemes “are characterized by the payment by 3 participants of money to the company in return for which they receive (1) the right to 4 sell a product and (2) the right to receive in return for recruiting other participants 5 into the program rewards which are unrelated to sale of the product to ultimate 6 users.” Omnitrition, 968 F.2d at 781. 7 17. According to the Ninth Circuit, the “satisfaction of the second element of the Koscot test is the sine qua non of a pyramid scheme: “As is apparent, the 8 presence of this second element, recruitment with rewards unrelated to product sales, 9 is nothing more than an elaborate chain letter device in which individuals who pay a 10 valuable consideration with the expectation of recouping it to some degree via 11 recruitment are bound to be disappointed.” Omnitrition, 968 F.2d at 781. 12 18. The United States Court of Appeals, Ninth Circuit has adopted the 13 Koscot standard and held that the operation of a pyramid scheme constitutes fraud. 14 19. Pyramid schemes and endless chain schemes are likewise illegal under 15 California law. California Penal Code § 327 defines an endless chain scheme as 16 follows: “any scheme for the disposal or distribution of property whereby a 17 participant pays a valuable consideration for the chance to receive compensation for 18 introducing one or more additional persons into participation in the scheme or for the 19 chance to receive compensation when a person introduced by the participant 20 introduces a new participant.” This definition is similar to the Koscot test. 21 B. The LuLaRoe Pyramid Scheme’s Basic Structure 22 20. Since at least 2013, LuLaRoe has been operating and conducting 23 business in California, and throughout the United States.